Business Directories

Goldman cuts pay as revenue plunges

New York, October 17, 2013

Goldman Sachs Group has slashed employee compensation costs by 35 per cent in the third quarter as bond-trading revenue plunged, an unusual step that signals the bank's concern about performance for the rest of the year.

Revenue from trading fixed-income, currency and commodity products for clients, one of the bank's biggest businesses, tumbled 44 percent in the quarter, Goldman reported on Thursday.

Excluding an accounting adjustment, the drop was 47 per cent, a much sharper decline than those posted by rivals. The bank's shares were down 2.4 per cent in late-morning trading to $158.43.

Harvey Schwartz, the bank's chief financial officer, said Goldman was hurt by its big mortgage bond business. Client trading volume in that sector dropped as the Federal Reserve said it would refrain from changing its bond-buying stimulus policy, giving investors less reason to trade.

"Goldman showed that they are also mortal," said Michael Holland, founder of Holland & Co, which owns financial stocks but does not own Goldman shares.

Goldman responded to the weaker revenue by setting aside less money to pay employees during the quarter - $2.38 billion, compared with $3.68 billion in the same quarter last year. That amounted to 35 percent of its revenue in the quarter, while the bank's target is usually closer to 43 percent.

Goldman sometimes cuts the money it sets aside for pay in a quarter, but it usually does so in the fourth quarter, when there is no hope of earning extra revenue for the year. Doing so in the third quarter signals that it does not expect a big rebound in the fourth quarter, a point Schwartz conceded on the conference call.

Setting aside less money for compensation will likely translate to lower bonuses for employees, at the least.

Overall, Goldman reported net income for common shareholders of $1.43 billion, or $2.88 per share, down 2 percent from $1.46 billion, or $2.85 per share, a year earlier. Per-share earnings rose because of stock repurchases.

Analysts had been expecting earnings of $2.43 per share, on average, according to Thomson Reuters I/B/E/S. But analysts had forecast higher revenue, and most of Goldman's earnings beat came from cost-cutting.

Overall revenue fell 20 per cent to $6.72 billion.

The bank boosted its dividend for the third time in less than two years, to 55 cents per share quarterly from 50 cents. The dividend is a relatively small expenditure for the bank, but Goldman is usually loath to boost its payout if there are better opportunities for it to invest the money elsewhere.

"The third quarter's results reflected a period of slow client activity," Chief Executive Lloyd Blankfein said in a statement.-Reuters